Pathways to decarbonizing a major economy

Apr 18, 2019
Pathways to decarbonizing a major economy
Study shows how Brazil could meet Paris climate goals at minimum cost

As the largest economy in Latin America and the seventh largest emitter of greenhouse gas emissions—primarily from agriculture (32%), land-use change and deforestation (28%) and fossil fuel consumption (27.7%)—Brazil plays a key role in global climate negotiations. In its Nationally Determined Contribution (NDC) to the Paris Agreement on climate change, the country pledged to reduce its emissions by 37% in 2025 and 43% in 2030 (relative to 2005 levels). To meet these targets, Brazil plans to decrease deforestation, reforest degraded land areas, expand the use of renewable energy sources (e.g. biomass, wind, solar and hydropower), increase energy efficiency and expand the area of integrated cropland-livestock-forestry systems.

If successful, Brazil’s efforts to lower emissions by 2030, and to decarbonize its economy to support the Paris Agreement long-term goal of keeping global warming well below two degrees Celsius, could help assure other countries in the region as well as other developing countries that massive decarbonization is achievable. Key to Brazil’s success will be to show that it can meet its short and long-term climate goals in a cost-effective manner.

With that goal in mind, researchers and collaborators of the MIT Joint Program on the Science and Policy of Global Change used a general equilibrium model of the world economy, the MIT Economic Projection and Policy Analysis (EPPA) model, to project the costs associated with Brazil’s current and alternative climate mitigation policy instruments by 2030, as well as policy options to further reduce emissions after 2030. Their findings appear in the journal Energy and Development Economics.

First the researchers compared the economic impact of Brazil’s current plan to implement its NDC with that of cap-and-trade systems (CTS) that put a price on carbon emissions—one sectoral (in which every sector must reduce emissions by the same percentage), the other economy-wide. The study projects that the economic impact of the Brazilian NDC would be less than one percent of GDP in 2030 under the nation’s current plan or either of the two CTS alternatives, compared to a business-as-usual scenario. Thus the cost of reducing emissions is relatively cheap in the short run, and Brazil’s NDC is well-designed.

The researchers next determined that further efforts to reduce the nation’s greenhouse gas emissions beyond 2030 (in keeping with the Paris Agreements 2°C goal) would require policy changes, since all potential emissions reductions from land use and agriculture would be completed, and the capacity to expand renewable energy sources would be limited. Given these constraints, the study found that an economy-wide carbon pricing system would help substantially to avoid higher compliance costs.

“The Brazilian government did a good job calculating what’s feasible for meeting its 2030 Paris emissions reduction goal, but it will also need to develop a viable strategy to achieve carbon neutrality in the long term,” says Angelo Gurgel, a professor of applied economics at Sao Paulo School of Economics – Fundacao Getulio Vargas, Brazil, and the study’s lead author. “And that means incentivizing emissions reduction in all sectors of the economy—sooner rather than later, to minimize the overall cost.”

The study projects that the carbon price under a national CTS would start out at $3 per ton of carbon dioxide equivalent in 2030 and rise to $103 per ton in 2050, with a 3% reduction in GDP; the price under a sectoral CTS could go from $60 per ton in 2030 to $370 per ton in 2050, with a 6% reduction in GDP. Thus an economy-wide carbon pricing approach would offer the least-cost climate mitigation strategy for the long term.    

The research builds on an earlier MIT Joint Program analysis based on Brazil’s commitments at international climate negotiations in Copenhagen, and benefits from EPPA model upgrades including improved representation of land-use change, agricultural activity and the Brazilian economy. The study is also part of a growing Joint Program effort to assess climate mitigation pathways at the national level.

“To date we have also performed this kind of analysis for Turkey and for several countries in Asia and Latin America,” says Joint Program Deputy Director Sergey Paltsev, a co-author of the study. “Country-level studies are extremely important because they show individual countries’ contribution to global emissions reduction and pinpoint opportunities to reduce emissions in the most cost-effective manner.”

The study was supported in part by the National Council for Scientific and Technological Development of Brazil.


Photo: Farmland southwest of Luís Eduardo Magalhães, a town in the western coastal state of Bahia that has become a hub for agribusiness in Brazil. The study projects that emissions reductions from the agriculture sector will help the country meet its Paris climate pledge for 2030, but other sectors will play a significant role after that. Source: NASA Earth Observatory